2019 (10) TMI 737 - AT - Income Tax

TP Adjustment - Comparable selection - HELD THAT Assessee is engaged in rendering ITES services thus companies functionally dissimilar with that of assessee need to be deselected from final list.

Summary

Issues Involved:
1. Application of the upper limit of turnover filter.
2. Inclusion of BNR Udyog Ltd. despite failing the RPT criteria.
3. Comparability of companies with different functional and risk profiles.
4. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Application of the Upper Limit of Turnover Filter:
The assessee argued that the TPO and DRP erred by not considering the upper limit of the turnover filter, ignoring jurisdictional precedents. The comparable companies Infosys BPO Limited, TCS e-Serve Ltd, and Accentia Technologies Ltd were sought to be rejected on this ground. The Tribunal, referencing previous decisions, directed the exclusion of Infosys BPO Limited and TCS e-Serve Ltd from the list of comparables, emphasizing that these companies were not functionally comparable with ITES providers like the assessee.

2. Inclusion of BNR Udyog Ltd. Despite Failing the RPT Criteria:
The assessee contended that BNR Udyog Ltd. should not be considered a comparable company as it failed the RPT criteria. The Tribunal noted that in previous cases, BNR Udyog Ltd. was excluded due to its involvement in medical transcription, billing, and coding, which are functionally different from the services provided by the assessee. The Tribunal directed the exclusion of BNR Udyog Ltd. from the list of comparables.

3. Comparability of Companies with Different Functional and Risk Profiles:
The assessee challenged the inclusion of Infosys BPO Limited, TCS E-Serve Ltd., and BNR Udyog Ltd. on the grounds of different functional and risk profiles. The Tribunal, referencing prior decisions, reiterated that Infosys BPO Limited and TCS e-Serve Ltd. were not functionally comparable with ITES providers due to their involvement in high-end services and brand value. Consequently, these companies were excluded from the list of comparables.

4. Initiation of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act:
The assessee argued that the initiation of penalty proceedings under Section 271(1)(c) was mechanical and lacked adequate satisfaction. However, this issue was not argued in detail and was treated as not pressed for adjudication by the Tribunal.

Conclusion:
The Tribunal directed the exclusion of Infosys BPO Limited, TCS e-Serve Ltd., and BNR Udyog Ltd. from the list of comparable companies, instructing the TPO to recompute the ALP accordingly. The appeal of the assessee was partly allowed, with the Tribunal emphasizing the need for functional comparability in the selection of comparable companies for determining the ALP in international transactions. The penalty proceedings issue was not adjudicated due to lack of detailed arguments.